Transcript – produced by Media Monitors

Station: ABC 666 CANBERRA

Program: DRIVE

Compere: LOUISE MAHER

Item: Presenter Louise Maher interviews Dr Michael Armitage, CEO, Private Healthcare Australia about the impact of new rules regarding the operation of Medicare.

LOUISE MAHER: The end of the financial year is a busy time for many people, and this year there’s something else to add to the mix: private health insurance. 

New rules come into effect at the start of July which could affect the amount you pay. People on higher incomes will lose some, if not all of the 30 per cent rebate the Federal Government offers, which means private health cover will become more expensive. And if you don’t have private health insurance, you could be paying more of the Medicare levy surcharge.

To take us through the changes and how they might affect you, we’re joined by Dr Michael Armitage who’s CEO of Private Health Australia which represents the private funds. Thanks very much for being with us this afternoon, Dr Armitage.

MICHAEL ARMITAGE: Hello, Louise.
LOUISE MAHER: Now it is quite confusing when you just look at the tables and try to work out whether or not you’ll be affected. And private health insurance and the way it all works is something that people really shy away from, don’t they, because it can become very complicated. But can you set out for us what the changes are going to mean and who should be paying attention?
MICHAEL ARMITAGE: Sure. And Louise, it is complicated. The reason for that is that the funds have made every attempt over a long period of time to create a lot of policies that will keep as many people as possible satisfied with the product. It’s not like having a high level, a medium level and an entry level. They really have lots of different products, and consequently, it’s complicated. And that is a difficulty. 

But look, the answer to the real issue is as you’ve enunciated, from 1 July, the Government is means testing the rebate for everyone who pays more than $84,000 as single, or greater than $168,000 as a family. What that…

LOUISE MAHER: So if you earn under those amounts you don’t have to worry?
MICHAEL ARMITAGE: You don’t have to worry this year. But next year, we are sure that the private health insurance premiums will go up as a direct effect of what’s going to happen, which is that people will pull out of the system. But there is…
LOUISE MAHER: So you believe premiums – the cost of premiums will go up for everyone?
MICHAEL ARMITAGE: That’s right. Now in the first year – that’s this coming financial year – they will go up for people who earn more than $84,000 as a single. But – and this is a great but – people can lock in their private health insurance rebate of 30 per cent of their premiums if they pay so that the money reaches the fund before 30 June. And 30 June falls on a weekend, so they’ve actually got to get their wits about them. But to save 30 per cent of the premium, it’s quite a big saving. It’s – it will only work for this year. 

But nevertheless, if people can save 30 per cent, they – most people are very happy to do that.

LOUISE MAHER: But they’d have to pay the full amount up-front, wouldn’t they?
MICHAEL ARMITAGE: They have to pay the full amount up-front.
LOUISE MAHER: Which might be difficult for some people who are now paying in monthly or fortnightly instalments.
MICHAEL ARMITAGE: I totally accept that. But the bottom line is that they will save 30 per cent on their premium if they prepay before 30 June.
LOUISE MAHER: It is means tested though, so if people are just above the new cut-off, they won’t lose the entire rebate, will they?
MICHAEL ARMITAGE: No, but the point is, it’s not means tested if they pre-pay. If they pre-pay – because the legislation says that the rebate will be means tested if it is paid on or after 1 July. So that means, and I’ve had this confirmed by the tax office, so there’s no – nothing dodgy or underhand about this, but because of the way the legislation has been written, people can pre-pay and they can lock in the 30 per cent without being means tested for this year only – sorry, for the coming year, the coming financial year only.
LOUISE MAHER: So that is an option people have. If people don’t want to do that, if they don’t want to lock themselves in, or if they can’t afford to pay that amount up-front, will they just keep paying the same amount they’re paying now in their private health cover next year? Or should they think about increasing that level knowing that they may not get as much rebate at the end of next financial year?
MICHAEL ARMITAGE: Louise, it’s a good point. I think everyone has to analyse their own individual financial circumstance, and we know that they do. And we know that because of the independent research we had done, we know that the increasing costs of private health insurance, as an affect of this Government legislation will mean that people will drop out of insurance. And they will also downgrade their cover. And it means that when they then get sick they will become dependent on the public hospital waiting lists. So this is actually a bad piece of legislation we contend, for both the public and the private sector. But it’s what the Government’s done and we have to react to it.
LOUISE MAHER: And the Government would argue that it should not be subsidising the private health cover of people on higher incomes. But we won’t have that argument at this point. But I mean, that’s – that is an argument that one can have. But just in terms of people who will be affected, what they should be doing, if people are above that means tested cut-off point, and they continue to pay the same amount as they are paying now all through next year, will they be hit with a higher tax bill at the end of next financial year?
MICHAEL ARMITAGE: Louise, the answer is they will. But there will be no additional penalty. So if someone is paying a certain amount of money now, and they continue to pay that, and they are above the $84,000, when they do their tax next year the tax office will say; ah ha, you should have been paying – we’ve been giving you a 30 per cent rebate. You might have only been eligible for a 10 per cent rebate; therefore you will need to pay more. But that will be an equilibration that will be done in their tax next year. 

So if you like to look at it crudely, people can get a 30 per cent loan from the Government at a no-interest rate, if you like, by just continuing to pay the same quantum. They’ll be hit eventually, but they do not have to pay the full amount up-front.

And the rationale for that, we think, is quite reasonable. The rationale is – what people are saying by doing that is they’re saying, I’ve got no idea what my income is going to be over the next 12 months, and they don’t.

I mean, people can do less overtime or they can be sacked or whatever. So, in fact, whilst, in the first week of next financial year, their income may look like it’s going to be more than $84,000, it may not be. And so they may, in fact, be eligible for the full rebate at the end of the year.

LOUISE MAHER: A question from one of our listeners about income. Is this – are these changes – or is this means tested figure – is it based on taxable income or net income?
MICHAEL ARMITAGE: Yes. It’s – look, it’s quite complex. There was a piece of legislation passed within the last 12 to 18 months and it defines exactly what the rebate-able quantum of income is. It’s like your taxable income. It’s not quite the same. It’s – I think they – you have to add in some dividends from shares and then you take off any – various things like that. 

So it’s the equivalent of your taxable income, not your net income.

LOUISE MAHER: Right. So it’s the equivalent of your – shall we say, your income before tax?
MICHAEL ARMITAGE: No, your – yes, your income – your taxable income, the income that you have to pay tax on, but it’s not exactly the same. There are some minor nuances, some technical things that I’m sure have got accountants and tax officers smiling, but it’s not the sort of thing that one can explain on radio at 3.15 on a Tuesday.
LOUISE MAHER: Without our heads hurting.
MICHAEL ARMITAGE: Absolutely. You’ve got it in one, Louise. That’s right.
LOUISE MAHER: All right. The other part of this, the other part of the changes that the Government has announced, that if you don’t have private health insurance, you will pay more of the Medicare levy surcharge. Now, this surcharge has been around for a few years, but it’s now being means tested, as well?
MICHAEL ARMITAGE: It is – there…
LOUISE MAHER: Or people are being means tested in relation to it, I should say?
MICHAEL ARMITAGE: Yeah, certainly. At the same income levels at which the tiers of – fit in, the level goes between 1 to 1.5 per cent of your income, which is just another tax that you pay if you are not privately insured. However, what – one of the dilemmas in all of this, and everyone needs to be interested in this, picking up what you said before who should be interested in this because this will mean that whether you’re privately insured or whether you’re on a public hospital waiting list, it will affect you, this year or next. 

The Government did not take into account the fact that if people just downgrade their insurance, they are not hit with a Medicare levy surcharge. So logically, people might move from top cover to a lot lower cover and not be penalised by the increased Medicare levy surcharge. The outcome of that for them will mean that potentially they will take a policy that has got more exclusions in it, like young, fit and healthy people might exclude orthopaedic care, for argument’s sake, because they say I haven’t got any arthritis, my hips and knees are fine. But then, the trouble is they go skiing and they do an anterior cruciate ligament or something like that or they play touch football or, you know, something that’s an outdoor sort of sport, and they need it to be done and they’re not covered for it. So they go to a public hospital and they compete with people who previously were not insured either.

LOUISE MAHER: Yeah, but people have to weigh up those risks – always have to weigh up those risks and work it out on the basis of what they think their own personal risks are and how much they can afford with private health cover.
MICHAEL ARMITAGE: Look, that’s true. But the dilemma, and this is a simple fact of life, if you are young, fit and healthy, people think you’re bomb-proof as well. And sadly, you’re not. You know, you’ll weigh it up – I know – I mean, this is written in stone. People will always take a risk. If you haven’t used your private health insurance, you are more likely to give it up under the added financial pressure that this legislation will cause. But that doesn’t mean that you won’t get sick.
LOUISE MAHER: So, just to conclude, Dr Armitage, Dr Michael Armitage, you’re CEO or Private Health Australia, if people do have private health insurance and they are earning those higher incomes, they really need to get in touch with their private health fund before the end of June to work out what would be the best situation for them?
MICHAEL ARMITAGE: There’s no question that they should do something about it.
LOUISE MAHER: Are the private health funds geared up to take all these extra inquiries that they’re no doubt getting at the moment?
MICHAEL ARMITAGE: Well, they are getting a lot of inquiries, Louise. They are geared up. They have specifically geared up to do that. But they are not qualified to give financial advice. 

So if someone rings up and says, look, my income is $87,000 and I’ve got – you know, these are my commitments, the Government – the funds can’t give them that advice. They’re not even allowed to do it by law, but they’re not, equally, skilled up to do that.

But, certainly, I think they should speak to their accountant or their tax agent or whatever, and they will give them the relevant financial advice. Once they have made that decision as to what they want to do, yes, every private health insurance fund is ready to go. They’re sitting waiting for calls from their members because they do want them to take advantage of this one off chance to save 30 per cent of the premium.

LOUISE MAHER: Dr Michael Armitage, thank you for joining us, this afternoon.
MICHAEL ARMITAGE: Thanks, Louise.
LOUISE MAHER: Dr Armitage is CEO of Private Health Australia. And we’ve just been talking about the means testing that comes into effect from 1 July, so that if you do have private health cover and if you earn – if you’re a single person more – earning more than $84,000, a couple or a family earning more than $168,00, though it will depend a bit on how many kids you have, if that’s you, you will be losing some, if not all, of the 30 per cent rebate the Government has been providing, over the past few years anyway, towards private health insurance. 

The private health funds are saying that if you want to pay up-front, the whole year up-front before 1 June, you will miss out on – you won’t lose that rebate for the first financial year. But these are questions that you have to weigh up yourself, the same as whether or not you need to reduce the level of your cover, if you can’t afford a higher level of cover. But they’re all things that you maybe need to think about, on top of everything else, as we approach the end of the financial year.

 

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